Words Speak as Loudly as Actions: Central Bank Communication and the Response of Equity Prices to Macroeconomic Announcements

While the literature has already widely documented the effects of macroeconomic news announcements on asset prices, as well as their asymmetric impact during good and bad times, we focus on the reaction to news based on the description of the state of the economy as painted by the Federal Open Market Committee (FOMC) statements. We develop a novel FOMC sentiment index using textual analysis techniques, and find that news has a bigger (smaller) effect on equity prices during bad (good) times as described by the FOMC sentiment index. Our analysis suggests that the FOMC sentiment index offers a reading on current and future macroeconomic conditions that will affect the probability of a change in interest rates, and the reaction of equity prices to news depends on the FOMC sentiment index which is one of the best predictors of this probability.

How the COVID-19 Pandemic Has Influenced Central Bank Communication on Social Media. An Analysis of Two Major Central Banks from the Anglo-Saxon economies

This study examines how central banks communicate on social media during the COVID-19 pandemic, and whether they are using these technologies to create a bidirectional communication or to increase their transparency by reaching a wider audience. The research method used for this purpose is content analysis, by investigating the information provided on the Twitter pages of two major central banks from the Anglo-Saxon economies: the Federal Reserve and the Bank of England. To be more specific, the current study is focused on the impact of the COVID-19 pandemic on the relationship between central banks and the public (if they interact with their audience by responding to comments or creating debate topics that engage the public or they just offer information about their decisions or measures to mitigate the negative effects of the pandemic on the economy), and the type of content central banks prefer (articles, online events, pictures or videos). The results show that central banks use social media and other forms of communication for the primary purpose of giving information about their efforts to ensure macroeconomic and financial stability, rather than for creating an open dialogue with the public.

CENTRAL BANK COMMUNICATION DESIGN: TOWARDS TRANSPARENCY OF MONETARY POLICY

The object of the article is central bank communication design (particularly target audience, channels and instruments) and central banks’ transparency measurement. The purpose is to summarise the central bank communication policy's conceptual basics and clarify how transparent the NBU’s monetary policy is. Methodology. The paper applies the Dincer and Eichengreen (2014) and Al-Mashat et al. (2018) methods of transparency measurement, using the NBU’s published documents and website data as of 2021. Results. It has been emphasized that communication design should be based on central bank’s communication objectives, information demand from defined stakeholders and target groups, capabilities of application of channels and instruments. Ensuring confidence in monetary policy calls for simplified language and format that reflects the general public's interest. The shift to the growing role of the type of communication channel and interaction of central bank with the general public are marked out. The meaning of transparency, criteria, and indices (Eijffinger-Geraats, Dincer-Eichengreen, Crowe-Meade, Cournede-Minegishi, CBT-IT index) are under consideration. According to Dincer and Eichengreen, the NBU’s transparency index reaches almost a perfect score of 12 (out of 15), affirming NBU’s political and policy transparency improvements. The NBU’s CBT-IT transparency index scores 11.45 (out of 20), which points to the need to eliminate gaps of the FPAS designed to support full-fledged inflation- forecast-targeting (3.2 out of 9) in the light of improvements in the monetary policymaking process (5.75 out of 7) and transparency about monetary policy objectives (2.5 out of 3). Practical implications. The enhancement of the NBU’s transparency level reflects the development of its communication policy as transparency of monetary policy requires constant and coherent messages via diversified channels and instruments for a defined target audience, following a clear purpose of strategic communication. Value/originality. It has been highlighted that central bank communication design is the basis for financial market participants' trust, favouring monetary policy transparency.

Sentimental Outlook for the Monetary Policies of South African Reserve Bank

The South African Reserve Bank (SARB) migrated to inflation targeting in 2000 and has since embarked on a trajectory of transparency. This has taken the shape of releasing Monetary Policy Committee (MPC) statements other forms of communication. This paper examines SARB’s MPC statements’ tone and sentiment between 2000 and 2021 using the Besigye-Segawa’s TextBlob polarity and subjectivity calculator which measures central bank communication tone and sentiment using the Loughran-McDonald dictionary’s word classification to gauge polarity and subjectivity. The study goes on to explore causality of SARB’s MPC statements’ tone and sentiment on inflation expectation results from the Bureau of Economic (BER) results survey. The systematic analysis shows a causality of SARB’s MPC statements’ tone and sentiment on succeeding BER’s inflation expectations results therein justifying the need for effective communication as SARB’s MPC communications’ polarity and subjectivity ultimately have a causal effect on inflation expectations. therein justifying the need for effective communication. As central bank tone and sentiment studies are only emerging in many emerging and frontier markets, this study lays a foundation for future exploration of effects of central bank communication on the expectations channel.

The effect of central bank communication on sovereign bond yields: The case of Hungary

In this article we investigate how the public communication of the Hungarian Central Bank’s Monetary Council (MC) affects Hungarian sovereign bond yields. This research ties into the advances made in the financial and political economy literature which rely on extensive textual data and quantitative text analysis tools. While prior research demonstrated that forward guidance, in the form of council meeting minutes or press releases can be used as predictors of rate decisions, we are interested in whether they are able to directly influence asset returns as well. In order to capture the effect of central bank communication, we measure the latent hawkish or dovish sentiment of MC press releases from 2005 to 2019 by applying a sentiment dictionary, a staple in the text mining toolkit. Our results show that central bank forward guidance has an intra-year effect on bond yields. However, the hawkish or dovish sentiment of press releases has no impact on maturities of one year or longer where the policy rate proves to be the most important explanatory variable. Our research also contributes to the literature by applying a specialized dictionary to monetary policy as well as broadening the discussion by analyzing a case from the non-eurozone Central-Eastern region of the European Union.